MADRESA MOHAMMADIYAN AND PANJATANIYA,DAHOD GUJARAT vs. CIT(E), AHMEDABAD, AHMEDABAD

1 The background facts, as culled from the assessment order dated 28.03.2023 and the record referred to therein, are that the 2

2 For bank verification, as the assessee had not produced bank details, the Assessing Officer issued notice under section 133(6) to 3

3 The Assessing Officer proposed disallowance of exemption under section 11 on the ground that Form No. 10B had not been filed and the requirements of section 12A(1)(b) were not fulfilled and further proposed to disallow 30 percent of revenue expenditure of Rs.1,57,18,133/- for want of supporting vouchers, as well as to disallow capital expenditure of Rs. 44,68,533/- for non-production of bills. The assessee, in reply dated 15.03.2023 and 20.03.2023, stated that it runs educational institutions, that accounts are audited under the Bombay Public Trusts Act, that bank reconciliations explain credits including corpus donations, opening cheque clearances and reimbursements, and that exemption under section 10(23C)(iiiad) is available since receipts of each educational institution are below the prescribed limit. In the video conference, the assessee undertook to furnish supporting details, and on 25.03.2023 filed a reconciliation statement of bank credits aggregating to Rs.2,56,24,550/- vis-à-vis 4

4 While finalising the assessment on 28.03.2023, the Assessing Officer, after noting that the Form No. 10B audit report was not available on the e-filing portal and that bills produced included hand- made and self-made vouchers, restricted the disallowance of revenue expenditure to 15 percent, observing that vouchers aggregating to Rs.17,12,780/- had been produced against the total claim and denied exemption under section 11. The total income was determined at Rs.82,64,136/-.

5 On these facts, the PCIT initiated present revisional juri iction under section 263. The order records that the Assessing Officer had himself stated that the assessee did not furnish complete evidence and that the veracity of expenditure remained unverifiable, yet disallowed only 15 percent. Invoking Explanation 2 to section 263 and clause (a) thereof, the PCIT held that the order is deemed to be erroneous and prejudicial to the interests of the Revenue as inquiries or verification which should have been made were not made, and that the Assessing Officer ought to have independently verified genuineness of the trust’s activities and vouchers. As regards the assessee’s plea on section 10(23C)(iiiad), the PCIT noted that the Assessing Officer had dealt with the issue in paragraph 4.5.16 of the assessment order and that the matter was pending before the first appellate authority, therefore no directions were issued thereon in the section 263 proceedings. The assessment order dated 28.03.2023 was 5

6 Aggrieved by the order of PCIT, the assessee is in appeal before us raising following grounds:

The Revision Order passed u/s 263 of the I.T. Act dated 25-03-2025 setting aside the Assessment Order passed u/s 144 r.w.s 263 dated 28-03-2023 which was in turn passed in view of the Revision Order passed u/s 263 of the Act dated 16-11-2021 setting aside the Assessment Order passed u/s 144 of the Act dated 30-12-2019 is bad is law in view of the fact that the said Original Assessment Order u/s 144 of the Act dated 30-12-2019 itself is bad in law and void for the reason that despite the appellant having filed return of income in response to the notice u/s 142(1) of the Act dated 12-03- 2018, the Juri ictional Notice u/s 143(2) of the Act was not issued by the Ld. AO. As the Original Assessment Order itself is void and non-est, the Revision Proceedings in respect thereof, being collateral proceedings, also prove to be void and invalid in eyes of law.

The Revision Order passed u/s 263 of the I.T. Act dated 31-03-2025 setting aside the Assessment Order passed u/s 144 r.w.s. 263 dated 28-03-2023 is bad in law and liable to be quashed as the said Assessment Order was passed without allowing the appellant the benefit of provisions contained u/s 10(23C)(iiiad) of the Act. Had the said benefit, the appellant was deserving of which, been allowed, the entire income of appellant would be exempt and therefore, the said Assessment Order passed u/s 144 r.w.s. 263 dated 28-03- 2023 is not prejudicial and erroneous to the revenue.

The Revision Order passed u/s 263 of the L.T. Act dated 31-03- 2025 setting aside the Assessment Order passed u/s 144 r.w.s. 263 dated 28-03-2023 is bad in law and liable to be quashed.

The Appellant reserves the right to add, alter, amend and withdraw any of the above grounds of appeal.

During the course of hearing before us, the learned AR of the assessee reiterated the facts and argued that the very foundation of the assessment order passed under section 144 of the Act dated 30.12.2019 was itself void and non-est, since no juri ictional notice 6

1 The AR pointed out that the Assessing Officer himself, in para 2 and 4 of the original assessment order dated 30.12.2019, recognised that the assessee had filed its return of income in response to notice under section 142(1), declaring income at ‘Nil’, which had also been considered by the AO while computing the assessed income. Nevertheless, in absence of a valid notice under section 143(2), the AO had no juri iction to frame the assessment under section 144 of the Act.

2 Reliance was placed upon judicial pronouncements to emphasize that an assessment framed without issuance of statutory notice under section 143(2) is void ab initio and cannot be validated in collateral proceedings, including those initiated under section 263 of the Act. It was further submitted that since the original assessment order dated 30.12.2019 was itself void for want of juri iction, all subsequent collateral proceedings, including revision orders passed under section 263 of the Act, were equally invalid and liable to be quashed. The AR pressed into service the ratio laid down by the Hon’ble Gujarat High Court and various Benches of the Tribunal to contend that once the foundation order is void, all subsequent orders based thereon cannot survive in the eyes of law. 7

3 On merits, it was submitted that the assessee trust was running three educational institutions, namely, (i) Burhani English Medium High School with Dinyat Section, (ii) Burhani English Medium Primary School, and (iii) Burhani English Medium Pre-Primary School. The combined strength of the students was about 1,500. These institutions were separately registered with the Gujarat Secondary and Higher Secondary Board or with the District Education Officer, Dahod.

4 The AR drew attention to the receipts of these institutions for the year under consideration, which were as under:

5 It was argued that each of these institutions was entitled to separate exemption under section 10(23C)(iiiad) of the Act, as the receipts of each institution were below Rs. 1 crore, which was the threshold prescribed under the law applicable for the relevant assessment year. Reliance was placed on the decision of the ITAT, Ahmedabad in the case of Shreeji Education Trust v. ACIT [ IT(SS)A No. 223/Ahd/2009 order dated 09.04.2010], as well as the decision of the Hon’ble Karnataka High Court in CIT v. M/s Children’s Education Society (2013) 358 ITR 373, wherein it was held that the monetary limit of Rs.1 crore under section 10(23C)(iiiad) is to be considered per educational institution and not in aggregate for the whole trust. It was further argued that subsequent amendment brought by the Finance Act, 2021 enhancing the limit to Rs. 5 crore with effect from 8

04.2022 only clarified the legislative intent that the monetary threshold was always to be reckoned per institution, and not per assessee as a whole.

6 With respect to the objection of the Assessing Officer that the assessee had not claimed exemption under section 10(23C)(iiiad) in the return of income, the AR submitted that such a technicality cannot deprive the assessee of the benefit otherwise available under the law. It was accordingly submitted that since the assessee was otherwise fully eligible for exemption under section 10(23C)(iiiad), the denial of exemption by the Assessing Officer was unjustified and the PCIT erred in invoking revisionary juri iction under section 263 of the Act on this ground.

On the other hand, the learned Departmental Representative (DR) strongly supported the impugned revisional order passed by the learned PCIT. It was submitted that the assessee was a habitual non- compliant and non-filer, who had not furnished its return of income within the due time prescribed under section 139(1) of the Act. The original assessment itself was completed under section 144 of the Act on 30.12.2019, which fact clearly demonstrates the non-cooperative attitude of the assessee in the course of proceedings. It was also pointed out by the learned DR that the assessee had not filed the audit report in Form 10B along with the return of income filed in response to notice u/s 142(1) and had claimed exemption u/s 11 of the Act. The learned DR further pointed out that the case of the assessee was selected for scrutiny on the specific ground that substantial amounts of cash had been deposited by the assessee during the period of demonetisation. 9

1 The learned DR also highlighted that even in the course of the assessment proceedings carried out pursuant to the directions under section 263 of the Act, the assessee did not comply with the statutory notices issued. It was pointed out that the Assessing Officer had issued a specific show-cause notice under section 144 of the Act during the proceedings, calling upon the assessee to substantiate its claim and furnish requisite documentary evidences. However, the assessee once again remained non-compliant and failed to file a proper and satisfactory response. The learned DR further highlighted that the assessee failed to furnish complete details and supporting evidences of its receipts and expenditure before the Assessing Officer. In fact, the Assessing Officer in his order dated 28.03.2023 categorically recorded that bills and vouchers produced were incomplete, hand-made and self-made, and could not be verified.

2 The learned DR further invited our attention to page 127 of the paper book filed by the assessee. Referring to the said document, it was contended that the permission issued by the District Education Officer appears to be in respect of only one school and not in respect of multiple institutions as claimed by the assessee. According to the DR, this demonstrates that the assessee’s contention of running different independent institutions, each entitled to separate exemption under section 10(23C)(iiiad), is not borne out from the evidences placed on record.

We have carefully considered the rival submissions and perused the material placed before us, including the orders passed by the Assessing Officer and the Principal Commissioner of Income Tax under section 263 of the Act, together with the paper book and case laws cited. 10

1 At the outset, it is pertinent to note that the assessee had not filed its original return of income under section 139(1) of the Act. The return came to be filed only in response to notice under section 142(1), and even thereafter, the assessee remained non-compliant throughout the proceedings. The Assessing Officer has made repeated references in his order to such non-cooperation and non-furnishing of requisite details. Except for a limited response to the notice issued under section 144 of the Act, no proper explanation or evidence was produced to substantiate the claim of expenditure. It is further noted from the record that the assessee has not filed or submitted its return of income for the earlier assessment year (A.Y. 2016-17) as well. This conduct reinforces the pattern of non-compliance on the part of the assessee and indicates that the failure to furnish return of income and to cooperate in the proceedings is not an isolated lapse for the year under appeal but a continuing default across assessment years.

2 A perusal of the assessment order dated 28.03.2023, more particularly para 4.6 onwards, reveals that the Assessing Officer categorically recorded that the assessee had not furnished supporting bills, vouchers, or confirmations, and that the material filed was incomplete, hand-made and self-serving. Despite these findings, the Assessing Officer chose to disallow only 15% of the expenditure of Rs. 1,57,18,133/-, thereby allowing an amount of Rs.1,33,60,414/- as revenue expenditure on an ad hoc basis. This course of action was without any objective basis and without verification of the genuineness of the expenditure.

3 The learned PCIT, in para 2.1 of the revisional order, has rightly pointed out this infirmity and has held that the assessment order is erroneous and prejudicial to the interests of the Revenue, since the 11

4 Coming to the grounds raised by the assessee, we note that the assessee has contended that since no notice under section 143(2) was issued after filing of return in response to section 142(1), the original assessment order dated 30.12.2019 passed under section 144 was void ab initio, and consequently, all collateral proceedings including the present order under section 263 must also fail.

5 On careful consideration, we find that this ground is misconceived in the present proceedings. The juri iction of this Bench in the present appeal is confined to adjudicating the correctness of the order passed under section 263. The issue whether the original assessment order suffers from juri ictional defect for want of notice under section 143(2) is not germane to the present appeal. Such a contention could have been raised at the stage of the original assessment or in appeal against the assessment order. Raising it now, at the stage of challenge to the revisional order, is clearly an afterthought. We, therefore, reject this ground. It is clarified that the assessee shall be free to raise such juri ictional plea, if so advised, in the proceedings relating to the assessment itself, but not in the present appeal against revision under section 263. 5.6 The assessee has further pleaded that its receipts were from three different educational institutions and that since each institution’s gross receipts were below Rs. 1 crore, it was entitled to 12

7 In view of the facts noted above, the Assessing Officer’s order dated 28.03.2023 allowing 85% of expenditure without proper verification was clearly erroneous and prejudicial to the interest of the Revenue. The PCIT has correctly exercised juri iction under section 263 by setting aside the said order for fresh examination. The reliance placed by the assessee on various precedents is distinguishable since, in those cases, the assessees were compliant and had filed returns of income accompanied with supporting evidences. Here, the assessee was a non-filer, remained non-cooperative throughout the proceedings, and failed to substantiate its claim of expenditure. 13

In the result the appeal filed by the assessee is dismissed.